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Totally Wired

HIGHTSTOWN - INCH by inch, the black-coated wire rolls off a giant wooden spool, snakes up a string of utility poles and crosses above the traffic island on Main Street.

All across this town in Mercer County, Verizon workers are suspended in cherry pickers feeding cable onto poles, or splicing fiber-optic ribbons in mobile trucks. These wires, made up of 144 tiny strands of glass no bigger than a hair, have the power to transport the cultural lifeblood of New Jersey: the "Today" show, "Oprah," "The Sopranos" and MTV.

Verizon's plan to wire the state with fiber-optic equipment to carry television in addition to telephone and Internet service, which it already offers, has set off a war of communications behemoths -- Verizon vs. Comcast and Cablevision -- for control of the state's television sets. Adding video to the telephone company's product line has riled the two major cable television companies operating in the state, even though they fired the first shot by offering telephone service through their Internet connections.

At stake are 2.5 million cable subscribers in New Jersey who paid a total of $2.2 billion for television and Internet service in 2004 alone, according to figures provided by the State Board of Public Utility.

In Trenton, two similar and controversial bills that would make it easier for Verizon to get the network running -- by awarding a statewide franchise rather than the cumbersome process of going town to town to reach individual agreements -- have been introduced, and although their fate is unclear, both sides are taking their case directly to consumers.

For several months, Verizon has been filling mailboxes, newspapers and Web sites with advertisements trumpeting its service as a blow to monopoly pricing by the few cable companies. Returning the salvo, cable television companies have broadcast commercials claiming that the proposed legislation will erode local access to cable channels and eventually increase the cost of cable service despite the introduction of more competition.

"This is being run like a political campaign," said William Dressel, executive director of the New Jersey League of Municipalities. "Emotions are running high. I've had executives on both sides yell and scream at me."

Since July, when Verizon began building its network in the state, the company -- with the help of 700 technicians that it hired for this very purpose -- has been stringing the fiber-optic system past 25,000 to 30,000 homes a month. By the end of the 2005 the network was capable of reaching 200,000 homes scattered throughout 123 of the state's 566 towns.

Nationally, Verizon's fiber-optic network now extends past 3 million homes, and the company plans to add another 3 million in 2006.

All-Fiberglass Network

The new network is made entirely of fiberglass, which will conduct information faster and with less loss of signal than the copper wire Verizon and its cable competitors currently use, according to Verizon. In some towns, Verizon will be replacing copper telephone wire that is 80 to 90 years old.

"We're building the network because that's the way the technology is going, and frankly, this is what consumers want," said Dennis Bone, president of Verizon New Jersey. "If consumers have a choice, they want fewer companies delivering their service. They want one throat to choke versus multiple throats."

Moreover, Mr. Bone says, consumers will benefit by the increased competition. Since 1999, when federal law deregulated the price of premium channels, the rate for basic cable in the state -- which provides simply for reception of the major broadcast networks but no cable programming -- has stayed the same, about $15 a month, but the cost for expanded basic and premium service has increased 80 percent, according to the State Board of Public Utilities.

To help speed introduction of its service, Verizon wants to abolish the current system of awarding cable television franchises in New Jersey. Under the state's Cable Television Act of 1972, television providers must hammer out individual agreements with municipal governments town by town to offer service.

Verizon contends the current system may have been the best way to handle cable franchises when the industry was in its infancy and municipalities were at risk of having their streets ripped up by a company that might disappear at any moment. But now, Mr. Bone says, the law only protects cable television companies from new competitors.

He argues that Verizon should be able to use its telephone and Internet franchise to provide television the same way cable television operators are now using their franchise agreements to provide telephone service over the Internet.

"They don't want us to use our franchise to sell all three," said Mr. Bone. "They want to keep us out of video, which is why they are fighting us so hard."

A Shortcut to High Profit?

For their part, providers of cable television say Verizon's zeal for competition is merely an excuse for a shortcut into the lucrative pay-television market. They also say Verizon's proposal will come at the expense of local control and increased franchise fees that will be passed on to consumers, and will allow Verizon to cherry-pick only the most affluent communities for its new service.

Since 1998, cable television operators have invested $2 billion in the state to develop a high-speed broadband network to accommodate computers and increase the number of channels that can be received. And, they are now earning the payback on that investment, said Karen Alexander, president of the New Jersey Cable Telecommunications Association.

"Verizon has lagged through its own strategic decisions and that has not worked out in their favor," Ms. Alexander said. "We don't have any difficulty with them coming into the market, but we think it should be a level playing field. We don't think the Legislature should upend the existing structure that has worked so well for consumers to help a $71 billion company make up for its bad decision-making in the past."

Two cable companies dominate television delivery in New Jersey with 93 percent of the market between them. Comcast Corporation with headquarters in Philadelphia, has 54 percent of the state's share of cable television, while Cablevision Cable Systems Corporation of Long Island has 39 percent.

Only four towns -- Paramus, Hillsdale, West Milford and Vernon -- have a choice of cable providers, which Mr. Bone says is an indication that cable operators benefit from a "cozy cartel."

Ms. Alexander said the enormous cost of developing a network from scratch is what keeps cable competitors from building new networks in an area that is already wired.

So far, Verizon, which operates in 29 states, is installing the new fiber-optic network in 16 of them. New Jersey was the ninth state in which the work was begun, said Mr. Bone. Until now, Verizon had focused on states where the regulatory climate was more favorable, including Texas, Florida and Virginia.

"New Jersey is toward the front of the pack," Mr. Bone said, "but there's a relationship between public policy and companies like Verizon that have the opportunity to invest in different states. You always start the investment where you think the return will be the greatest."

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Even if Verizon does not win its hoped-for legislation creating a one-stop franchise system, Mr. Bone has vowed to build the network anyway and negotiate agreements on a town-by-town basis. Last month, the company announced it would begin its first set of negotiations to bring television service to Park Ridge and Demarest in Bergen County, Hightstown in Mercer County, Red Bank in Monmouth County and the City of Passaic.

Verizon plans to offer up to 200 digital channels for $39.95 a month, less than cable customers pay for 70 to 80 channels. In addition, customers who already use Verizon for their voice and Internet service will get a $5 discount.

Ms. Alexander said the cable operators were likely to respond by lowering their prices, although she cautioned that an initial price war could ultimately result in higher prices for Verizon subscribers because the company would have to negotiate deals with companies like HBO that provide content, maintain the more-sophisticated fiber-optic network and pay the cost of rewiring, which some analysts have put at as much as $20 billion.

"Competition clearly offers consumers an increase in choice, and it may have some price benefits, but it's not a guarantee of lower prices," Ms. Alexander said.

But Richard J. Young, a spokesman for Verizon, said Ms. Alexander's assertion was "pure nonsense."

In New Jersey, Verizon has been speaking with local officials as well as state legislators and regulators since the beginning of 2005, though the legislation was not introduced until last month during the lame duck session, when bills have a better chance of passage and undergo less scrutiny.

The complexity of the debate has left many lawmakers scratching their heads. In fact, Mr. Dressel, of the League of Municipalities, said he had to hire a communications law firm to help him and his colleagues get a better grasp of the issues.

"In 32 years I have never spent so much time on any piece of legislation," he said. "It feels like I have made a career of this bill."

The key provisions of the bills would create a statewide franchise for up to 15 years. To address concerns that Verizon or other entrants into the market would select only wealthy communities for service, the legislation would require networks to build out completely in any town offering service within six years of the legislation being signed into law under the Assembly bill and within nine years under the Senate version.

Franchise fees paid to local governments, which totaled $23 million in 2004, would rise from 2 percent of revenue earned off basic cable service to 4 percent of revenue from all channels; 3 percent would be returned to local municipalities, while counties and the state's Pharmaceutical Assistance to the Aged and Disabled program would split the remaining share.

Finally, Verizon has argued that creating a statewide franchise would spare municipalities costly legal fees and months of negotiations.

As it is, Mr. Bone said, the cable companies are likely to object to the agreements, dragging the process out for 18 months to two years.

"That's a little bit like crying wolf," Ms. Alexander said.

"They can give you a lot of reasons not to go through the local franchising process," she said.

Ms. Alexander said that if Verizon had begun negotiating with municipalities when it first made the decision to bring its network to New Jersey, the company would already have franchise agreements signed.

The legislative proposals, introduced by two Democrats, Senator Joseph V. Doria Jr. of Hudson County and Assemblyman Wilfredo Carabello of Essex County, are under review by state regulators, although neither the Board of Public Utilities nor New Jersey's Ratepayer Advocate have taken a position.

A Concern for the Working Class

Jeanne M. Fox, president of the State Board of Public Utilities, said she favors the idea of competition, although she has some concerns about the proposed legislation.

Her biggest worry, Ms. Fox said, was that a statewide system could lead to low-income households being left with no basic cable television service. She explained that under federal law, once there is competition in a given franchise area, the price of basic cable -- which about 400,000 households in the state have -- is no longer regulated.

"I'm personally concerned that working-class people might not be able to afford basic," she said. "It's not unrealistic to think that their rates will go from $12 to $13 a month to gosh knows what. There may be competition right away, but in four to five years there could be a real problem."

Seema Singh, the state's Ratepayer Advocate, said she also liked the notion of competition, though she, too, expressed concerns. Ms. Singh said that any franchise law approved by the Legislature should require companies to separate their divisions so that companies cannot take the revenue earned from rate increases in one area to subsidize an expansion, or a price war, in another.

Ms. Singh also said she thought the 15-year franchise term was too long to assure good service and fair prices. "If it is for 15 years," she said, "these guys are scot-free to do whatever they feel like."

This is not the first time Verizon has tried to deliver television service to New Jersey. In 1994 the company launched a fiber-optic network in Toms River to serve 50,000 homes, but the company pulled out when it became clear the system would never make money.

But as Mr. Bone said, times have changed and new technology has driven down the price of providing fiber-optic networks directly to homes. It is for that reason that Verizon is making a big bet on this new network.